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SRC Construction Corp. of Monroe v. Atlantic City Housing Authority

United States District Court, D. New Jersey, Camden Vicinage

March 18, 2019


          HANTMAN & ASSOCIATES, By: Robert J. Hantman, Esq., Counsel for Plaintiff SRC Construction Corp. of Monroe.

          PARKER McCAY P.A., By: Richard W. Hunt, Esq.; Dana B. Ostrovsky, Esq., Counsel for Defendant Atlantic City Housing Authority.



         THIS MATTER comes before the Court upon Defendant Atlantic City Housing Authority's (“ACHA”) Motion to Vacate (“Motion to Vacate”)[Dkt. No. 209-18] the Final Arbitration Award dated June 20, 2018 (“Final Award”)[Dkt. No. 209-2]. In response, Plaintiff SRC Construction Corp. of Monroe (“SRC”) filed (1) a Motion for Sanctions against ACHA and its law firm, Parker McCay P.A. (the “Motion for Sanctions”)[Dkt. No. 220], and (2) a Motion to Require the Posting of an Appeal Bond (the “Bond Motion”)[Dkt. No. 214]. For the reasons set forth below, ACHA's Motion to Vacate and SRC's Motion for Sanctions will be DENIED. SRC's Bond Motion will also be DENIED, as it is not ripe.


         This case involved a dispute arising out of the construction of a 4-story senior living facility in Atlantic City, New Jersey (the “Project”). The first two times that ACHA put construction on the Project up for bid, ACHA determined that even the lowest bids were still too costly. After all proposals came in over budget on the third bid, ACHA proceeded to negotiate with the two lowest bidders. Although SRC's proposal was more expensive than the other competing bidder, ACHA awarded the bid to SRC because “it was believed [that] their approach to the project would be superior.” Final Award, at 1-2.

         On April 24, 2002, ACHA and SRC entered into an agreement governing work on the Project (the “Contract”)[Dkt. No. 209-6]. The Project was to be completed in approximately a year and a half, but took more than eight years to complete. The parties have now spent another eight years in litigation.

         On July 8, 2010, the general contractor, SRC, filed the original Complaint against ACHA, Lindemon, Winkelmann, Deupree, Martin, Russell & Associate, P.C. (“Lindemon”), the architect, and Czar Engineering as Defendants. On April 12, 2011, the Court granted Defendant Czar's motion to dismiss because SRC failed to produce an Affidavit of Merit of professional negligence. See Dkt. Nos. 41, 42. On October 24, 2013, the Court dismissed Defendant Lindemon for the same reasons. See Dkt. No. 137. On May 1, 2014, the Court entered the Final Pretrial Order [Dkt. No. 150].

         After five years of litigation, with trial scheduled for July 13, 2015, SRC and ACHA agreed to administratively terminate this action on July 6, 2015, merely a week before trial, and proceed to binding arbitration. See Dkt. No. 168. The agreement to arbitrate included the following requirements: that a three-member panel consist of at least one attorney; that the Panel would consider pretrial motions as if it had been the Court; and the arbitration would be “limited to the claims made in the underlying litigation and as reflected in the pretrial order.” [Dkt. Nos. 174, 175].

         Disputes between the parties ensued almost immediately upon the commencement of arbitration, returning the case to this Court for clarification. The Court ruled that the arbitration proceedings were to be governed by the Final Pretrial Order and that the applicability of the so-called “Burt Doctrine”[1] and “Spearin Doctrine”[2] were to be presented to the arbitrators pursuant to the parties' agreement to arbitrate. See Dkt. No. 201, at 5. Eventually, a three-person panel of arbitrators was selected comprising of Andrew Carlowicz, Jr., Esquire, Frank Renda, PE and Vincent Riverso, PE, Esquire (the “Panel”). All three held themselves out to be competent experienced construction law counsel and/or professionals, free of conflict. The parties finally began the arbitration proceedings in the fall of 2017.


         After 24 days of arbitration proceedings involving multiple witnesses and extensive exhibits, [3] the Panel issued a 19-page opinion, on June 20, 2018, setting forth the basis for a final award in favor of SRC in the amount of $2, 294, 074.85.

         The Final Award summed up the terms of the Project as follows:

The construction cost [of the Project] was primarily funded by the U.S. Department of Housing and Urban Development (“HUD”). The parties executed the contract on April 24, 2002 [(the “Contract”)]. The notice to proceed date was May 24, 2002, and the project required substantial completion within 600 days and final completion within 630 days. Ultimately, ACHA terminated SRC on April 30, 2009; nearly 7 years after the notice to proceed date. A performance bond had been issued by Travelers who took over the project and retained a replacement contractor, AJS Contracting (“AJS”). The completion of the project ultimately achieved substantial completion in the fall of 2011; two and one half years after termination despite the fact that the Project was 98% complete at termination.

         Final Award, at 2.

         As the Panel observed: ”It was clear during the hearings that even to this date the parties never agreed where the line of demarcation rested with respect to the design responsibilities for this aspect of the work between the architect/engineer (“AE”) design team on the one hand, versus SRC on the other hand.” Id.[4]

         The Panel further noted that the arbitration “had two somewhat unusual wrinkles as well.” Final Award, at 3. Those wrinkles were, first, that both parties agreed to be bound by the Final Pretrial Order in this case. Second, ACHA asserted that it would be entitled to a credit or set off pursuant to Burt v. West Jersey health Systems, 339 N.J. Super 297 (App. Div. 2001) for any damages proximately caused by the proven malpractice of the architect team. SRC opposed ACHA's position and argued that irrespective of Burt, the so-called “Spearin doctrine”[5] allowed SRC to seek damages proximately caused by the malpractice of the architectural team directly from ACHA. The Panel resolved the latter dispute in a ruling on August 22, 2017, that any damages proven to have been suffered by SRC which were caused by the professional malpractice of the architect or engineering consultant would be reduced from the overall damages awarded to SRC in its claim against ACHA.


         Pursuant to 9 U.S.C. § 9, after an arbitration award is entered, the Court must judicially enforce the award “unless the award is vacated, modified, or corrected.” Hall St. Assocs., L.L.C. v. Mattel, Inc., 552 U.S. 576, 587 (2008). “There is a strong presumption under the Federal Arbitration Act (the “FAA”), 9 U.S.C. § 1 et seq., in favor of enforcing arbitration awards.” Brentwood Med. Assocs. v. United Mine Workers of Am., 396 F.3d 237, 241 (3d Cir. 2005)(citing Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983)); see also Hamilton Park Health Care Ctr. Ltd. v. 1199 SEIU United Healthcare Workers E., 817 F.3d 857, 861 (3d Cir. 2016).

         A court's review is exceedingly narrow, and a district court should vacate arbitration awards “only in the rarest case[s].” Newark Morning Ledger Co. v. Newark Typographical Union Local 103, 797 F.2d 162, 165 (3d Cir. 1986). The moving party bears the high burden of proving that the arbitration award should be vacated. Handley v. Chase Bank, 387 Fed.Appx. 166, 168 (3d Cir. 2010)(citing Dluhos v. Strasberg, 321 F.3d 365, 370 (3d Cir. 2003))(“The party seeking to overturn an award bears a heavy burden as these are ‘exceedingly narrow circumstances'”).

         What this Court cannot do is to vacate an arbitration award merely to correct factual or legal errors. See Major League Umpires Ass'n v. Am. League of Prof'l Baseball Clubs, 357 F.3d 272, 279 (3d Cir. 2004). There is a strongly federal policy in favor of commercial arbitration, and, thus, this Court begins its review with the presumption that the award is enforceable. Freeman v. Pittsburgh Glass Works, LLC, 709 F.3d 240, 251 (3d Cir. 2013).

         Pursuant to 9 U.S.C. § 10(a), there are four grounds upon which an arbitration award may be vacated:

(1) where the award was procured by corruption, fraud, or undue means;
(2) where there was evident partiality or corruption in the arbitrators, or either of them;
(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or
(4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.

9 U.S.C. § 10(a).

         In addition to the four statutory bases for vacating an arbitration award, there are three common law grounds for vacatur: 1) an arbitrator's manifest disregard for the law, as opposed to a legal error; 2) if the award is completely irrational; and 3) if the award is contrary to public policy. See Dluhos v. Strasberg, 321 F.3d 365, 369 (3d Cir. 2003).[6]ACHA contends that the arbitrators acted in manifest disregard of the law. As set forth above, the standard of review is a deferential one. See Sutter v. Oxford Health Plans LLC, 675 F.3d 215, 219 (3d Cir. 2012), as amended (Apr. 4, 2012), aff'd, 569 U.S. 564 (2013). If the arbitrators make “a good faith attempt to [interpret and enforce the contract], even serious errors of law or fact will not subject [the] award to vacatur.” Id. at 220.


         In seeking to vacate the arbitration award, ACHA asserts one statutory ground for relief, “evident partiality” and a common law ground for relief, “manifest disregard for the law.” With respect to the latter, ACHA contends that the Panel exceeded its powers and manifestly disregarded the law regarding three claims: (1) ...

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